Key Points –

1. Widening Gap Between House Prices and Earnings: In the last decade, London has seen a significant increase in house prices, far outstripping the growth in local incomes. This trend has led to a drastic decline in housing affordability across the city.
2. Most Affected Boroughs: Barking and Dagenham experienced the sharpest decline in housing affordability, with the house price to salary ratio increasing dramatically. Other boroughs like Hillingdon, Havering, Redbridge, and Sutton also faced substantial rises in this ratio.
3. Extreme Case of Kensington and Chelsea: In Kensington and Chelsea, the property price to salary ratio reached 38.1 by 2022, indicating a severe affordability crisis in this desirable borough.
4. Impact of COVID-19 and Economic Factors: Reduced stamp duty rates during the COVID-19 lockdown and a rush to complete transactions before rising interest rates contributed to the surge in house prices in 2022.
5. Long-Term Market Outlook: Experts suggest that London’s housing market is nearing its price increase limit under the current economic conditions. The reevaluation of work/life balance post-pandemic is also influencing housing market trends, with living in the capital becoming less of a priority for some.

In the last decade, London has witnessed a remarkable surge in house prices, far outpacing the growth in local incomes. This has resulted in a significant decline in housing affordability across the city, impacting residents’ ability to own homes.

The gap between house prices and earnings in London has widened alarmingly since 2013. Research shows that in every borough of the city, the cost of buying a home has increased at a rate much faster than wage growth. This trend has made it increasingly difficult for average workers to afford homes in the capital.

The Most Affected Boroughs

Among all London boroughs, Barking and Dagenham has experienced the sharpest decline in housing affordability. Here, the average house prices more than doubled in the last decade, from about £180,000 to £375,000. Meanwhile, median salaries in this East London district have not kept pace, leading to a situation where a typical resident needed 11.8 times their salary to buy a home in 2022, a significant jump from 5.6 times a decade earlier.

Other boroughs like Hillingdon, Havering, Redbridge, and Sutton also saw substantial increases in the house price to salary ratio, making it increasingly difficult for locals to afford homes.

London’s Affordability Crisis by Numbers

• Barking and Dagenham: House price to salary ratio increased from 5.6 in 2013 to 11.8 in 2022.
• Hillingdon: Ratio rose from 7.6 to 14.2.
• Havering: Increased from 7.8 to 13.3.
• Redbridge: Jumped from 8.8 to 14.5.
• Sutton: Went up from 8.3 to 12.8.

The Extremes of Kensington and Chelsea

Kensington and Chelsea, a highly desirable West London borough, witnessed the largest absolute rise in unaffordability. By 2022, the property price to salary ratio soared to 38.1, meaning that a local couple would need a deposit of several hundred thousand pounds to buy a home there.

The Smaller, Yet Significant Changes

Even in boroughs like Brent, where the change in affordability was relatively modest, residents still faced significant challenges. The house price to salary ratio in Brent increased from 12.4 in 2013 to 13.4 in 2022.

Factors Behind the Soaring Prices

Pete Mugleston, Managing Director of Online Mortgage Advisor, points to the reduced stamp duty rates during the Covid lockdown and a rush to complete transactions before interest rates rose as key factors driving the renewed house price growth in 2022.

Aneisha Beveridge from Hamptons estate agents highlights that London property values have risen more rapidly than other parts of the country since 2009, with cheaper areas of the capital playing catch-up with prime neighborhoods.

The Consequences of High Prices and Interest Rates

Despite a recent fall in house prices, affordability continues to suffer due to high interest rates and the general high cost of living. This situation has left homeownership a distant dream for many renters in the capital, confining it to those with the highest incomes.

The Outlook for London’s Housing Market

Experts like Tom Bill from Knight Frank estate agents believe that London’s housing market is nearing its limit in terms of price increases given the current economic climate. With people reevaluating their work/life balance post-pandemic, living in the capital has become less of a priority for some, potentially influencing future housing market trends.